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Random Thoughts: Stocks Arrive at a Critical Juncture

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A technical toggle is upon us.

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Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

I return from yet another trip to the doctor-I will be getting a right hip replacement next Tuesday, leaving the left hip for another time-to find the S&P (INDEXSP:.INX) meandering under our all-important S&P 1560 level.

Pulling up my trusty systems, I see that the S&P rallied out of the gate to S&P 1560.10 before dipping roughly 12 handles. If I had been around to manage and monitor the risk, I would have faded that move (the first fade was the easy trade) and perhaps picked against that overage on the subsequent pullback.

Then again, if wishes were knishes, I would weigh 300 lbs.

There are a few things we know, and a few things we believe. We know the options expiration hangover is over as firms have presumably squared their extraneous risk following Friday's April expiry.

We know earnings have beaten estimates (on the aggregate) and the reaction has been mixed with a bearish bias, as evidenced by the lower highs in the S&P.

Finally, we know there is tranched technical resistance on the S&P between S&P 1560 and S&P 1610.

What do we believe? Well, a few things; first, we believe social mood continues to deteriorate despite market proxies at or near all-time highs.

We believe central banks are taking historic, extraordinary measures to morph the stock market rally into a legitimate economic recovery.

We believe there is inflation in things we need (health care, food, energy) and deflation in things we want (cell phones, plasmas, laptops).

Finally, we believe that nobody is bigger than the markets for an extended period of time, if markets are to remain free.

While the first fade (lower this morning) was the easy trade, I continue to trade my September SPY put position in real-time over on the Buzz & Banter (click here for a free two-week trial).

Below is the confluence of resistance in and around S&P 1560, so you have it; sometimes a picture speaks 1,000 words.



Some Random Thoughts:
  • Keep an eye on the Russell (INDEXRUSSELL:RUT) as many view this as an early indicator of risk appetites. In short, RTY 900, and the reaction to that level, is likely a precursor to S&P 1540, which is THE level of lore.
  • We all know the bull case-liquidity, liquidity, liquidity-and while nothing would surprise me at this point, the bears must defend these levels or risk being ushered back into hibernation. With emerging markets-and much of Europe-lower on the year, the bull case is predicated on a decoupling, which is a tall order in a derivative-laced, finance-based interconnected global economy, or at least that's my take.
  • S&P 1540-1560 is the zone (Mr. Valentine has set the price), with additional resistance tranched between S&P 1580-1610.
  • The reaction to news (earnings) is always more important than the news itself. Through that lens, I will draw your attention to the price action in Caterpillar (NYSE:CAT).
  • Last week, we flagged the potential that the insider sales window typically opens at Goldman (NYSE:GS) a few days after earnings. The stock has been heavy ever since.
  • I offered on Friday that with all eyes are on Boston, I didn't remember such focus (away from the financial markets by financial media) since the OJ chase, although I'm sure 9/11 was much the same (I wasn't in front of the TV).
  • Last Monday, the S&P was down 36 handles. On Tuesday, it gained 22 handles. Wednesday, it lost 22 handles. Thursday, it lost 10 handles, and on Friday, it gained 13 handles. Nothing like a little volatility to shake things up, eh?
  • A few housekeeping notes. First, we launched the new Buzz & Banter on Friday, and as with most launches, there are some glitches and fixes that continue to take place; thank you for your patience as we strive to keep our community happy. Second, I will be in wall-to-wall pre-op on Wednesday starting at 7:00 a.m. and plan to jump back on the Buzz around 1:00 p.m. or so.
  • Remain lucid, remove emotion, and focus on the process, as the mechanics of the swing always trump the results of the at-bat.
R.P.

Twitter: @todd_harrison

Follow Todd and over 30 professional traders as they share their ideas in real-time with a FREE 14 day trial to Buzz & Banter.
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Position in SPY.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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